Salesforce: AI To Boost CRM Growth

Summary:

• Salesforce’s competitive edge lies in its CRM solutions, with solid market leadership and expected profitability growth.
• AI has various applications in CRM, including increased sales, productivity, and cost savings, which could boost the growth of the CRM market.
• Notably, we find Salesforce’s developments in AI significantly ahead of its competitors which could allow it to further strengthen its grip on the CRM market.

In our previous analysis, we determined Salesforce, Inc.’s (NYSE:CRM) competitive edge lies in its CRM solutions with solid market leadership and expected profitability growth as SG&A costs decrease due to enhanced scalability. We also identified its strong free cash flows supporting M&A and anticipated further revenue growth through future acquisitions on top of organic revenue growth.

In this analysis, we covered this again following its recent announcements related to AI and we determined how Salesforce could benefit from AI in the CRM market. Firstly, we examined the use of AI in CRM and the benefits provided by it. We then estimated the market size and forecasted the market growth of the CRM market with AI. Moreover, we examined Salesforce AI developments in terms of its launched and announced AI solutions as well as product integration and its AI model approach. Additionally, we examined its acquisitions and how it complements Salesforce’s AI. Finally, we determine whether the company could sustain long-term competitive advantages in CRM with AI by determining whether it has competitive advantages for its AI and how it could leverage its strength in the CRM market.

Could AI Provide a Boost to CRM Market Growth?

According to Itransition, AI has various applications in different business functions related to CRM. In sales, AI can predict customer lifetime value, automate tasks like appointment scheduling and optimize salesperson performance. In marketing, AI tools such as sentiment analysis, personalization and predictive may enhance customer experience. In customer service, AI can provide personalized support through chatbots and email responses, ensuring continuous assistance and enhancing customer engagement and loyalty. Some of the benefits of AI in CRM for businesses include:

• Increased Sales: AI in CRM enhances salesforce efficiency by automating manual tasks and workflows, enabling sales teams to focus on lead conversion through streamlined processes.
• Increased Productivity: Based on research by the National Bureau of Economic Research, “AI assistance increases the productivity of agents by 14%, as measured by the number of customer issues they are able to resolve per hour”.
• Cost Savings: AI can lead to cost savings in customer service with examples such as “intelligent document processing, workforce management, post call wrap-up, and task and process workflow automation via robotic process automation and process mining” according to Gartner.

From the company’s latest earnings briefing, management also highlighted the cost and productivity benefits of AI for customers.

…I think many of our customers and ultimately, all of them believe they can grow their businesses by becoming more connected to their customers than ever before through AI and at the same time, reduce cost, increase productivity, drive efficiency and exceed customer expectations through AI. – Marc Benioff, Chairman and Chief Executive Officer

According to McKinsey, the main business function which has the greatest productivity impact is customer operations. It highlighted research that the implementation of generative AI led to a 14% increase in issue resolution per hour, a 9% reduction in issue-handling time, and a 25% decrease in agent attrition and requests for manager assistance. Besides customer operations, AI also provides significant productivity impact to the marketing and sales business functions.

CRM Market Growth with AI

CRM Market Size ($ bln)	2019	2020	2021	2022	2023F	2024F	2025F	2026F	2027F
Market Size	54.13	57.03	63.39	70.14	77.63	85.92	95.10	105.25	116.50
Growth %		5.4%	11.2%	10.6%	10.7%	10.7%	10.7%	10.7%	10.7%

Click to enlarge

Source: Statista, Khaveen Investments

Based on Statista, the CRM market has a projected CAGR of 10.7%. Some of the drivers of the CRM market are the growing adoption of CRM systems among SMEs, utilization of cloud-based CRM solutions and a greater focus on enhancing customer engagement according to Technovio.

Several CRM companies have pricing plans that include AI features and are generally more expensive than their standard plans. We compiled pricing plans of CRM companies such as Freshdesk, PSXD Digital, Freshsales, Zoho, Salesforce, Microsoft Dynamics (MSFT), Oracle (ORCL), Clickup, Monday Sales, Zendesk, Copper, Pipedrive and Podio. For their pricing without AI, we calculated the average pricing of their plans without AI features and compared it with their AI plans’ pricing to derive the % increase.

CRM Platform	Pricing Without AI	Pricing With AI	Increase %
Freshdesk	32	79	146.9%
PSX Digital	14.4	24.0	66.6%
Freshsales	27	69	155.6%
Zoho	26	52	102.6%
Salesforce	90	330	266.7%
Microsoft Dynamics	65	95	46.2%
Oracle	100	125	25.0%
Clickup	9.5	14.5	52.6%
Monday Sales CRM	10	19	90.0%
Zendesk	72	115	59.7%
Copper	25	59	136.0%
Pipedrive	12.5	24.9	99.2%
Podio	11.2	19.22	71.6%
Average			101.4%

Click to enlarge

Source: Freshdesk, PSX Digital, Freshsales, Zoho, Salesforce, Microsoft Dynamics, Oracle, Clickup, Monday Sales, Zendesk, Copper, Pipedrive, Podio, Khaveen Investments

Based on the table, we derived the average pricing increase of the 7 CRM companies at 101.4%. To forecast the CRM market factoring in AI, we first forecasted the increase in the adoption of AI CRM. A study by Freshworks in 2019 found that just 12% use AI CRM. Moreover, a study by IFS involving 600 ERP executives and managers showed that roughly 90% were considering the implementation of AI in their respective organizations.

We compiled the table of the adoption rate of AI in CRM from 2019 to 2022 with a forecast to 2027. For 2019, we based this on Freshwork’s survey of 12% of businesses that adopted AI in CRM. For 2022, we based the adoption rate on AI adoption by businesses from McKinsey. We estimated a prorated increase of 4% per year to reach 90% by 2032 as our long-term assumption.

CRM Market Forecast ($ bln)	2022	2023F	2024F	2025F
Adoption Rate of AI CRM	50.0%	54%	58%	62%
Increase %	12.7%	4.0%	4.0%	4.0%
ASP Increase Due to AI		4.1%	4.1%	4.1%
CRM Market Growth (Without AI)		10.7%	10.7%	10.7%
CRM Market Growth (With AI)		14.7%	14.7%	14.7%
CRM Market Size	70.14	80.48	92.34	105.94

Click to enlarge

Source: McKinsey, Statista, Khaveen Investments

Based on the adoption rate increase, we multiplied this with our calculated ASP increase between non-AI and AI CRM plans of 101.4% and derived an average ASP increase due to AI per year. We added this into the CRM market CAGR by Statista and derived our market growth forecast of the CRM market through 2025 at an average of 14.7%.

All in all, we highlighted the benefits of CRM in AI including streamlining sales, marketing, and customer service, boosting efficiency, increasing sales, enhancing customer experience, and reducing costs. We expect the CRM market to benefit from AI and projected average forward growth of 14.7%, which is 4% higher compared to the market forecast CAGR of 10.7%, driven by the pricing premium attributed to AI features and the rising adoption of AI in CRM.

Salesforce AI Developments

In this point, we focus on Salesforce’s AI CRM products that have been announced and launched.

Wide Breadth of AI Features

We compiled the company’s AI products and features for its CRM platform in the table above based on the company’s website with a description of the AI feature and identification of the relevant use case for the feature as well as the underlying technology of its AI features. Based on the table, we found a total of 11 AI features for the company across its CRM platform. Additionally, we found a total of 17 unique use cases from its AI features. Its Einstein for Commerce and Slack AI have the most use cases (3). Most of its AI features are based on ML technologies with 5 features leveraging NLP technologies as well. Overall, we believe Salesforce has a wide range of AI features for CRM software as its 11 features span across all 3 business functions within CRM (Sales, Marketing and Customer Service) that can have AI applications as discussed in the previous point.

Product Integration Strength

Salesforce AI integrates with Salesforce’s cloud-based CRM platform allowing businesses to leverage AI within their CRM, offering real-time generative AI capabilities across Salesforce services like Slack, Einstein, Data Cloud, Tableau, Flow, and MuleSoft.

Salesforce took a leap into artificial intelligence (‘AI’) in 2016 when they announced Salesforce Einstein. Salesforce Einstein is not a single product; it’s a technology layer that’s woven into the Salesforce Lightning platform and various Salesforce cloud products. – Salesforce Ben

Overall, we believe this allows the company to target its installed base of large enterprises with a full suite of its CRM AI solutions and could support Salesforce’s growth positively as the AI Cloud’s pricing starts at $360,000 per year which is $30,000 monthly and is 90x higher than its current highest priced monthly subscription plans.

Agnostic AI Model Approach

In 2019, Salesforce introduced its LLM called CTRL with 1.63 bln parameters. However, Salesforce is embracing other company’s AI models such as Anthropic, Cohere, Databricks, Google Cloud’s Vertex AI and OpenAI to allow for a wide range of data models to be used within its CRM product ecosystem. According to the company, its Einstein AI platform, for example, allows the integration of third-party AI models.

Einstein is built on an open platform. You can safely use any large language model (LLM). Ours, yours, or any other you choose. Salesforce Research has developed its own domain-specific LLMs. And Einstein lets you work with any model in an ecosystem of industry-leading LLM platforms. – Salesforce

Additionally, McKinsey highlighted that companies prioritize speed and flexibility with a preference for the “bring your own LLM” (BYOL) approach. Therefore, we believe the company’s approach of allowing its AI features to be powered by third-party AI models is positive for the company to cater to its enterprise customers.

Salesforce Acquisitions Complement AI

Acquisition	Year	Cost ($ bln)
Servicetrace	2022	N/A
Slack	2022	27.7
Tableau	2020	15.7
MuleSoft	2019	6.5

Click to enlarge

Source: Salesforce, Khaveen Investments

Within the past 5 years, Salesforce has made 13 acquisitions. Out of the 13 acquisitions, we identified 4 acquisitions that complement the company’s AI features. These include Slack, Mulesoft, Tableau and Servicetrace (integrated with MuleSoft).

• Slack: One of the company’s acquisitions includes Slack, a communication platform that has been integrated into the company’s CRM platform. In 2023, Salesforce introduced AI capabilities for the platform with Slack AI including channel recaps for essential highlights and one-click thread summaries for quick thread overviews. It also offers a search answers feature, which provides related messages, files, channels, and AI-generated summaries in response to questions. According to the company’s CEO, the platform’s vast amount of data is highlighted for its AI opportunities. “It holds so much data for our customers. I think Slack is going to be the promise of AI for a lot of our most important customers”. One of the advantages of Slack is its third-party app integration with 1.4x more apps compared to Microsoft Teams. We believe one of the advantages of Slack’s AI is its integration with AI models such as OpenAI and Anthropic.
• Tableau: Furthermore, another acquisition is Tableau which it acquired in 2020. It is a data analytics and visualization platform that infuses AI with Tableau Business Science AI-driven analytics leveraging machine learning technologies. According to BI Connector, “Tableau can handle large volumes of data quickly” compared to competitors such as Microsoft Power BI as well as provides extensive features. One of the features is its integration with Salesforce’s Einstein Trust Layer data architecture which enhances data security and privacy for its AI feature.
• MuleSoft: Furthermore, the company also acquired MuleSoft in 2019. According to the company, “MuleSoft is a platform that gives IT the tools to automate everything. This includes integrating data and systems, automating workflows and processes, and creating incredible digital experiences — all on a single, easy-to-use platform”. In relation, Salesforce also acquired RPA company Servicetrace in 2022 which had been integrated with Mulesoft and enhanced its Einstein AI CRM platform with RPA capabilities. According to Artemis Innovations, a reason Mulesoft is popular is due to its integration capabilities which allows companies to integrate their legacy software with SaaS products using APIs. Leveraging MuleSoft’s integration capabilities, Salesforce’s Mulesoft AI enables companies to build integrations with its Einstein CRM AI platform which we believe highlights a product integration strength.

With the addition of Servicetrace, MuleSoft will be able to deliver a leading unified integration, API management and RPA platform, which will further enrich the Salesforce Customer 360 — empowering organizations to deliver connected experiences from anywhere. The new RPA capabilities will enhance Salesforce’s Einstein Automate solution, enabling end-to-end workflow automation across any system for service, sales, industries, and more, – MuleSoft CEO Brent Hayward

Salesforce Ventures (AI Investments)

According to the company, “Salesforce has been involved in early rounds of funding for top AI startups”. For example, it is expanding its Generative AI Fund, doubling the fund to $500 mln. One of the company’s investments includes Anthropic and Cohere, which are companies developing LLMs. As highlighted above, the company has an agnostic AI approach and allows for Anthropic and Cohere’s LLM to be integrated with its AI CRM. Overall, we believe its investments in AI companies such as LLM providers support its AI developments as it adopts an agnostic AI model approach, which allows it to integrate third-party AI models such as the companies that it has invested in like Anthropic and Cohere.

Overall, we highlighted Salesforce’s wide breadth of AI features and use cases which encompasses the 3 main business functions of CRM that have AI applications in sales, marketing and customer service powered by NLP and ML technologies.

Furthermore, some of its AI features are related to its key acquisitions such as Mulesoft, Tableau and Slack. We found that these acquisition complements the company by enabling the integration of the company’s and third-party AI applications with its CRM platform, allowing Salesforce to create a more integrated and comprehensive ecosystem of products and benefit customers by offering a wider range of products integrated with AI capabilities.

In relation, we believe that Salesforce, with its AI Cloud, has a product integration strength that includes its AI features in a comprehensive package that we believe could allow the company to target large enterprise customers and support growth with the higher pricing of its comprehensive package. Moreover, we believe its agnostic AI model approach further highlights its product integration capabilities and caters to the needs of enterprise customers.

How Salesforce Could Sustain its Competitiveness in CRM with AI

According to the company, Salesforce management expects to also be the leading CRM company when it comes to AI. Thus, we compared Salesforce’s AI with its key competitors in the CRM market and determined whether it could remain competitive in the market with AI.

… Salesforce is transforming from being not only the number one CRM, but to the number one AI CRM. – Marc Benioff, Chairman and Chief Executive Officer

CRM Market Share Dominance

CRM Market Share	2018	2019	2020	2021	2022
Salesforce	16.80%	18.40%	19.50%	22.90%	23.00%
Oracle	5.70%	5.20%	4.80%	5.10%	4.80%
SAP (SAP)	5.60%	5.30%	4.80%	4.70%	4.60%
Adobe (ADBE)	3.50%	3.70%	4.00%	3.60%	3.60%
Microsoft	3.40%	3.60%	3.80%	5.80%	5.70%
Others	65.00%	63.80%	63.10%	57.90%	58.30%

Click to enlarge

Source: IDC, Grand View Research, Khaveen Investments

Based on the chart above of the CRM market share by IDC, Salesforce has consistently maintained a strong and growing presence in the CRM market over the years. Starting in 2018 with a market share of 16.8%, it has steadily increased its share each year, reaching 23% by 2022. On the other hand, Microsoft has gained market share during the period and has become the second-largest competitor to Salesforce in CRM, overtaking Oracle and SAP in 2021. Additionally, Oracle and SAP lost market share in the period while Adobe’s share remained relatively similar to its 2018 share. In our previous analysis, we identified one of the competitive advantages of Salesforce is its superior breadth of features on its CRM platform compared to its top competitors.

Comparison with Competitors

Furthermore, we compared the company’s AI in CRM with its competitors based on its AI CRM features, application (use cases), AI models, cloud presence (market share) and acquisitions related to AI for CRM to determine whether Salesforce has an advantage in AI for CRM as well.

Company	Number of AI Features in AI CRM	Use Cases	Number of Use Cases of AI CRM
Salesforce	11	Chatbot Customization, Data Protection, Email Automation, Smart Scheduling, Personalized Customer Service, Personalized Marketing, Customer Sales Insights, Data Visualization, Predictive Analytics, Product Information, Product Recommendations, AI-powered Summarization, In-built Research Tools, Writing Assistant, Workflow Automation, Data Analysis, Forecasting	17
Microsoft	4	Email Automation, Smart Scheduling, AI-powered Summarization, Product Information, Personalized Customer Service, Customer Sales Insights	6
Oracle	6	Image Recognition, Data Analysis, Anomaly Detection, Forecasting, Customer Insights, Speech Recognition	6
Adobe	4	Predictive Analytics, Customer Sales Insights, Product Information, Product Recommendations, Forecasting	5
SAP	8	Customer Sales Insights, Product Information, Forecasting, Personalized Customer Service, Product Recommendations, Sales Automation, Tax Compliance, Data Analysis, Fraud Detection, Predictive Analytics	10

Click to enlarge

Source: Company Data, Khaveen Investments

Based on the table, we found that Salesforce leads with the highest number of AI CRM product features with a total of 11. Additionally, we identified a total of 17 use cases from its AI features in CRM which is the most among the companies compared. On the other hand, we found Microsoft tied with Adobe with only 4 AI features in CRM across its Copilot in Dynamics 365 for Microsoft and Adobe Experience Cloud. However, Microsoft has slightly more use cases than Adobe. We also identified commonly found use cases across all companies including personalizing customer service, providing product information and predictive analytics. Overall, we believe this comparison highlights Salesforce’s superior product breadth and use case application for AI in CRM.

Moreover, we also compared other factors such as AI models, cloud computing presence and the number of AI-related acquisitions for CRM in the past 5 years in the table below.

Company	AI Models	Number of AI Models	Cloud Share	Number of AI Acquisitions
Salesforce	Salesforce, Anthropic, Cohere, Databricks, Google Cloud’s Vertex AI and OpenAI	6	3%	4
Microsoft	OpenAI	1	22%	0
Oracle	Cohere (OCI)	1	2%	2
Adobe	FLAN-T5	1	N/A	1
SAP	N/A	0	N/A	1

Click to enlarge

Source: Company Data, Oracle, Adobe, Digital Commerce 360, Synergy Research, Khaveen Investments

Based on the table, we identified that Salesforce has the most AI model integrations with at least 6 mentioned by the company. As mentioned above, this is due to the company adopting an agnostic AI model approach where it allows other AI models besides its own LLM to be integrated with its AI solutions such as the Einstein platform. In our previous analysis of Microsoft, we compared the top LLMs and determined that OpenAI has the superior LLM while Salesforce is ranked 17^th place out of 18 of the LLMs compared. In terms of cloud market share, Microsoft beats Salesforce as the second largest cloud provider which we previously determined as its competitive advantage. Finally, we found that Salesforce has the most AI acquisitions related to AI for its CRM integration with a total of 4 as mentioned in the previous point.

Ranking	Features	Use Cases	AI Models	Cloud	Acquisitions	Average Ranking	Factor Score
Salesforce	1	1	1	2	1	1.2	1.45
Microsoft	4	3	2	1	5	3	1.00
Oracle	3	3	4	3	2	3	1.00
Adobe	4	5	3	4	3	3.8	0.80
SAP	2	2	5	4	3	3.2	0.95

Click to enlarge

Source: Khaveen Investments

We ranked the companies based on the factors which we compared in the table above. For the AI models, we ranked this based on the capability in terms of parameters with OpenAI being the best with its GPT-4 model. However, as Salesforce and Microsoft are tied as both support OpenAI’s models, we determined the better company based on the breadth of AI models with Salesforce as the top due to its integration with various AI models. As seen Salesforce has the highest average ranking of 1.2 as it leads across all metrics including features, use cases, AI models and acquisitions. We calculated its factor score at 1.45x which we applied to our market growth rate to forecast its revenue growth and market share in the CRM market through 2025 below.

Market Share Forecast

All in all, Salesforce continued to solidify its market position in the CRM market in 2022. Going forward, we believe Salesforce stands to continue growing its market share in the CRM market based on our analysis of its AI CRM developments. We believe Salesforce stands out compared to other leading competitors due to its large AI CRM feature breadth, application in terms of use cases, AI model integration advantage and acquisitions related to the AI CRM space. As such, based on the chart above, we projected Salesforce’s market share to increase to 26.1% by 2025. Additionally, we also forecasted Microsoft and Oracle’s market share to remain stable through 2025 while SAP and Adobe’s market share to decline.

Risk: AI CRM Competitors

We believe one of the risks Salesforce could face to be the top company in AI for CRM is competition from smaller players within the CRM market such as Freshworks, PSX Digital, Zoho, Clickup and Monday Sales have AI features integrated with their CRM platforms. Additionally, as we had highlighted previously, there are many competitors in the CRM market, with a total of 880 CRM solutions based on G2, an increase of 20% from the time of our previous coverage. We believe smaller companies could pose a greater competitive threat to Salesforce if they pursue AI product development. Notwithstanding, we believe Salesforce has several advantages such as its market leadership and installed base which it could leverage to support its growth.

Valuation

Salesforce Revenue Projections ($ mln)	2022	2023F	2024F	2025F
Revenue	31,352	36,483	44,279	53,741
Growth %		16.4%	21.4%	21.4%

Click to enlarge

Source: Company Data, Khaveen Investments

For our revenue projections, we projected its growth based on our CRM market forecast CAGR of 14.7% multiplied by our factor score of 1.45x for the company, as explained in the previous point above, for a total growth rate of 21.4%. In 2023, we derived a growth rate of 16.4% by averaging its H1 actual growth rate of 11.4% YoY and our forecast growth rate of 21.4% as we expect its growth could increase following the general availability of its AI features in July 2023. Furthermore, the company’s management highlighted in its last earnings briefing its positive outlook for H2 as the top company in AI CRM as well as revenue acceleration.

As we head into the second half of the year, we are leading the way as the number one AI CRM with… the pace of innovation at an all-time high. Our focus on customer success drives our own success, accelerating revenue and profitability. – Brian Millham, President and Chief Operating Officer

Based on a discount rate of 10.5% (company’s WACC) and terminal value based on the average EV/EBITDA of top software companies of 30.13x, we obtained an upside of 46% for the company.

Verdict

In summary, we emphasized the advantages of incorporating AI into CRM, such as streamlining sales, marketing, and customer service processes, improving efficiency, boosting sales, enhancing the customer experience, and reducing operational costs. We projected a robust average forward growth rate of 14.7% for the CRM market, with an increase of 4% compared to the market forecast CAGR driven by the premium pricing associated with AI features and the increasing adoption of AI in CRM.

For Salesforce specifically, we found that the company has comprehensive AI features, spanning sales, marketing, and customer service functions, driven by NLP and ML technologies. Notably, we believe Salesforce’s strategic acquisitions, including Mulesoft, Tableau, and Slack, have enriched its AI capabilities, allowing for seamless integration of applications within its CRM platform and fostering a more extensive and cohesive ecosystem of products, benefiting customers with a broader range of AI-enabled applications. We believe its integration strength is further highlighted by its AI Cloud, where AI features are bundled together targeted for enterprise customers as well as an agnostic AI model approach to cater to the diverse needs of enterprise customers.

Looking ahead, we anticipate Salesforce’s continued expansion in the CRM market, solidifying its position and forecasted its stock to further increase to 26.1% by 2025. In total, we forecasted a 5-year forward average growth of 18% for the company, which is still below its 5-year historical average of 24.4%. Notwithstanding, we derived a price target of $294.61 and rated the company as a Strong Buy.

---

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CRM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

No information in this publication is intended as investment, tax, accounting, or legal advice, or as an offer/solicitation to sell or buy. Material provided in this publication is for educational purposes only, and was prepared from sources and data believed to be reliable, but we do not guarantee its accuracy or completeness.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

---